The new trading week is poised to face a trifecta of challenges – earnings concerns, fears of rate hikes, and geopolitical tensions, all likely to impact the market. Stock futures indicate a moderately lower market opening on Monday.
Four major corporations, including Alphabet, Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), Microsoft, Inc. (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and Amazon, Inc. (NASDAQ:AMZN), are set to release their earnings reports this week. In the latter half of the week, significant economic data is scheduled for release.
On Monday, surging bond yields are expected to unsettle investors as the yield on the 10-year Treasury note has once again surpassed 5%. This rise reflects expectations of further interest rate increases in the current tightening cycle. Although the futures market has priced in a 98.46% probability of a pause decision at next week’s Federal Reserve meeting, the persistently high yields are a concern.
In the week ending on Oct. 20, major stock indices experienced a sharp decline as robust economic data drove bond yields significantly higher. The market grew apprehensive about the Federal Reserve’s intention to further raise the federal funds rate within the present tightening cycle.
The release of disappointing earnings reports, including that of electric vehicle giant Tesla, Inc. (NASDAQ:TSLA), compounded concerns about corporate profit growth in the midst of an uncertain economic landscape.
The Nasdaq Composite Index and the S&P 500 both recorded losses for the fourth consecutive session, with the Nasdaq Composite Index posting back-to-back weekly declines. Both indices retreated to their lowest levels since early June. The Dow Industrials fell for a third consecutive session and concluded at its lowest level in over two weeks.
Small-cap stocks faced intense selling pressure, causing the Russell 2000 Index to reach a 16-month low.
Despite the turbulence in interest rates, things aren’t bad, said Brad McMillan, chief investment officer for Commonwealth Financial Network. The analyst noted that growth continued. “Job growth came in last month at almost twice expectations; Consumer confidence and business confidence are holding; And the retail sales report this week came in much stronger than expected,” he said.
The markets are catching up with what the Fed has been saying for months now: “rates will be higher for longer,” McMillan said. “That is and will be a painful financial adjustment,” he added.
That said, the strong labor market is acting as a cushion for the real economy, the analyst said. “For the average person, although the impact of interest rates is real, available jobs and real wage growth are helping everyone through it,” he said.
The unfolding week’s economic calendar is back-end loaded, with the chief among the data being the first read of third-quarter GDP data, due on Thursday, and the September personal income and spending report due on Friday. Ahead of the Federal Open Market Committee meeting scheduled for Oct. 31-Nov. 1, the inflation component of the report, namely the annual rate of the core price consumption expenditure index, could be closely watched by traders.
Also on investors’ radar are the weekly jobless claims report, S&P Global’s flash manufacturing and service sector readings for October, durables goods orders data for September and a few housing market data. The Fed officials have gone into a quiet period ahead of the FOMC meeting and therefore the markets won’t get to hear from any of them this week.
Stocks In Focus:
- Hess Corp. (NYSE:HESS) rose moderately in premarket trading after the company announced a deal to be bought by Chevron Corp. (NYSE:CVX) in a $53 billion all-stock deal.
- Most large-cap growth stocks including Tesla, Nvidia Corp. (NASDAQ:NVDA) and Palantir Technologies, Inc. (NYSE:PLTR) are all moving to the downside.
- Agilysys, Inc. (NASDAQ:AGYS), Crane Company (NYSE:CR), Packaging Corporation of America (NYSE:PKG) and Logitech International S.A. (NASDAQ:LOGI) are among the notable companies reporting after the market closes.
Crude oil futures fell 0.66% to $87.50 in early European session on Monday following a 1.2% rally in the week ended Oct. 20.
The benchmark 10-year Treasury note surged up 0.084 percentage points to 5.008% on Monday.
The global markets are in a sea of red, with the Asian markets plunging across the board, while European stocks traded lower by late-morning trading.
Produced in association with Benzinga